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The role of managerial accounting is increasing. These managers have to be able to increase effectively the involvement and size of organizations. These business managers also have to be aware of the rapid growth and enactment of technology. Managers also have to be familiar with the regulatory environment, be able to contend successfully globally and have an increase importance on excellence.
When examining the major differences between financial and managerial accounting, we find that with financial accounting the information is reported in statements. The financial statements objectively and periodically report the results of past operations and the financial condition of the business according to the Generally Accepted Accounting Principles (GAAP) (Vallabhaneni, 2003). Examples include shareholders, creditors, government agencies, and the public. On the other hand, managerial accounting information includes both historical and estimated data used by management in conducting daily operations, planning future operations, and developing overall business strategies (Vallabhaneni, 2003). Managerial accounting also includes information for decision-making, planning, directing, controlling an organization's operations, and appraising its competitive position. Managerial accounting has internal users of information. These users comprise of business managers at all levels in the organization. Financial accounting uses external users of information. These users include stockholders, financial analysts, lenders, unions, consumer groups, and government agencies. This is hard data, and must meet audit criteria to be acceptable. Managerial Accounting rules are set within the company to carry out management objectives related to adding value to the company. Managerial accounting data must only be relevant for management decisions.
As we take a closer look at reports, managerial accounting use cost of production reports for decision-making. These comprise preparing detailed plans, budgets, forecasts, and performance reports for internal decision makers. Managerial accounting aids managers plan and administrate the company's operations. Accountants prepare budgets to communicate management's goals in financial terms by identifying, measuring, accumulating, analyzing, interpreting, and communicating information. After a budget has been adopted, performance reports compare actual results with the budget. Cost accountants help management keep track of how much it costs a company to make the product, or service (Shpargalka, 1999). Financial accounting incorporates preparing business financial statements mainly for users outside the business. These reports are used by owners, potential owners of a business, and by people who have loaned company money. In addition, stockholders, suppliers, and banks also benefit from the financial reports that are generated (Horngreen, Stratton, & Sundem, 2002).
The table below will explain the differences between financial and managerial accounting (Weygandt, Kieso, & Kimmel, 2001).
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Financial Accounting Managerial Accounting
Primary Users of Reports
External users, who are stockholders, creditors, and regulatory agencies Internal users, who are officers, department heads, managers, and supervisors in the company
Types and Frequency of Reports
Classified financial statements Issued quarterly and annually. Internal reports Issued as often as needed.
Purpose of Reports
To provide general-purpose information for all users To provide special-purpose information for a particular user for a specific decision
Content of Reports
Belongs to entity as a whole and is highly aggregated (condensed).
Limited to double-entry accounting system and cost data
Reporting standard is the Generally Accepted Accounting Principles. Refers to subunits of the entity and may be detailed
May extend beyond double-entry accounting system to any type of relevant data
Reporting standard is relevance to the decision to be made.
Annual independent audit by certified public accountant No independent audits.
As mention in our textbook appendix A, of Hilton−Maher−Selto, (2005), they are four ethical standards for managerial accountants that the Institute of Management Accountants (IMA) must have. These are having competence, being confidential, showing integrity, and being objective.
Competence - In having competence, a managerial accountant must maintain expert knowledge and skills, follow laws, regulations, examine all suitable data, and provide complete information. In my line work, I refer competence to the ability to do my job. My earned knowledge, training and how I portrait this ability could depend in me saving someone's live. Been a Soldier is more than just been an ordinary citizen; we have the duty to ensure the safeguard of others as well.
Confidentiality - A managerial accountant should not disclose confidential information unless legally obligated to do so and they should not allow subordinates to disclose confidential information as well. Again, in my line of work we control classified information that cannot be made public at will. Some of the information has to do with assignment that could ultimately cost Soldiers and civilian lives. Other confidential information also includes information of national security that cannot be made public for obvious reason.
Integrity - in showing integrity, a managerial accountant must communicate favorable as well as unfavorable information including limit of the information, avoid obvious or actual conflicts of interests, and avoid activities that will question the profession. An illustrative example of this topic is when Soldiers leave in a risky operation and a fire fight develops, I have to show the integrity to say the truth to what really happen and not cover up a story. This is to holding true to one's value.
Objectivity - In being objective, a managerial accountant must communicate all information properly and fully disclose all relevant information. As a supervisor of many Soldiers, I have to account and ensure that all units under my command have the same fair treatment no matter what is the mission or task. I have to treat each one of them the same and be neutral.
For Managerial Accountants is vital to adhere strictly to the above standards to thrive ultimately in today's society.
Overall, financial, and managerial accountings both are important aspects of the business world. Most companies have some form of each type of accounting merged into their business operations. By following the suitable standards for each, the business will be able to keep successfully track of their financial standing for internal as well as external purposes.
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